Mr. Disraeli's Budget (April 1858)

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London, April 20, 1858

Mr. Disraeli's speech on the Budget in the Commons, on April 19, fills about ten columns of The London Times, but, at all events, it is pleasant to read, perhaps rather more so than the Young Duke of the same author. As to lucidity of analysis, simplicity of composition, skillful arrangement and easy handling of details, it stands in happy contrast with the cumbersome and circumlocutory lucubrations of his Palmerstonian predecessor. Neither does it contain or pretend to any striking novelty. Mr. Disraeli found himself in the happy position of a Minister of Finance who has to deal with a deficit not of his own making, but bequeathed by a rival. His part was that of the doctor, not of the patient. On the one hand, then, he had to meet a deficit; on the other, all serious restriction of expenditure was put out of the question by the ventures England had embarked in under the auspices of Lord Palmerston. Mr. Disraeli roundly told the House that, if they wanted a policy of invasion and aggression, they must pay for it, and that their loud cry for economy was a mere mockery, blended, as it was, with an unscrupulous readiness for expenditure. According to his statement, the charges devolving upon the financial year 1858-59 would be:

Charge on the funded debt	£28,400,000
Permanent charge on the consolidated fund	1,900,000
Army estimates	11,750,000
Charge for the navy, including packet service	9,860,000
Civil service	7,000,000
Revenue department	4,700,000
Exchequer bonds to be liquidated in May, '58	2,000,000
War sinking fund	1,500,000
Total charge	£67,110,000

The revenue of the year 1858-59 was estimated as follows:

Customs	£23,400,000
Excise	18,000,000
Stamp duty	7,550,000
Land & assessed taxes	3,200,000
Post-Office	3,200,000
Property and income tax	6,100,000
Crown lands	270,000
Miscellaneous	1,300,000
Total revenue	£63,020,000

A comparison between the estimated expenditure and the estimated income shows, despite the rather sanguine views taken by Mr. Disraeli of the eventual produce of the customs, the excise and the post-office, a clear deficit of £4,000,000. How was it to be met? The Palmerstonians had chuckled at the mere idea that Mr. Disraeli would be forced to suspend the decline in the next year of the income tax from 7d. to 5d. in the pound, a proposition which, when made by Sir Cornewall Lewis, he and Mr. Gladstone had distinguished themselves by opposing. Then the cry of factious opposition would have been raised, and the unpopularity of the tax turned to good account. In one word, the income tax was the rock which it was confidently predicted the Derby state ship must split upon. Mr. Disraeli, however, was too old a fox to be ensnared in such a trap. He told the House, on the contrary, that John Bull, during the last five years, had "behaved" like a good boy in financial matters; had borne the public burdens with great spirit, and should, therefore, under his present distressed circumstances, not be grieved by a tax he had always felt a peculiar aversion to, especially since, by the arrangement of the year 1853, resolved upon by an immense majority of the House, the good boy had been promised the progressive diminution of the tax, and its final extinction at the end of a certain number of years. Mr. Disraeli's own prescriptions for meeting the deficit, and securing even a small margin of surplus income, amount to this: Postpone the liquidation of two millions of Exchequer bonds to a later period; do not pay the £1,300,000 for the war sinking fund until there is a bona fide surplus to be sunk in it; equalize the English and Irish duties on spirits, by raising the latter from 6s. 10d. to 8s. per gallon, which equalization would give an increase of £500,000 to the Exchequer; and, lastly, put a penny stamp on bankers' checks, which would produce to the revenue a surplus of £300,000.

Now as to the trifling new taxes imposed by Mr. Disraeli, no serious objection can be raised against them. Though the representatives of Paddy felt it, of course, their duty to protest, any check put upon the spirit consumption in Ireland must be considered a curative measure. In proposing it, the Chancellor of the Exchequer could not withstand the temptation of poking some fun at his Irish friends. "In the most cordial spirit" he asked "the high-spirited Irishmen" to concur in the proposition for taxing "Irish spirit," and mingle their "spirits" with those of Englishmen and Scotchmen, &c. The penny stamp on bankers' checks was fiercely attacked by Mr. Glyn, the representative of the London banking and stock-jobbing interest. That unfortunate penny, he felt sure, would prevent the monetary circulation of the country from performing its duties; but, whatever terror Mr. Glyn might feel or feign to feel at the audacity of imposing a trifling duty on bankers and stock-jobbers, his feelings are not likely to find an echo among the mass of the British people.

The serious feature of Mr. Disraeli's budget is the stopping of the operation of the artificial sinking fund, that great financial sham reintroduced by Sir Cornewall Lewis, on occasion of the debts contracted during the Russian war. The genuine British sinking fund is one of those monster delusions which obscure the mental faculties of a whole generation, and the gist of which the following one is hardly able to understand. It was first in the year 1771, that Dr. Richard Price, in his observations on reversionary payments, revealed to the world the mysteries of compound interest and the sinking fund.

"Money," he said, "bearing compound interest, increases at first slowly; but, the rate of increase being continually accelerated, it becomes in some time so rapid as to mock all the powers of imagination. One penny, put out at our Savior's birth at five per cent interest, would, before this time, have increased to a greater sum than would be contained in 150 millions of earths, all solid gold. But, if put out at simple interest, it would in the same time have amounted to no more than 7s. 4½d. Our Government has hitherto chosen to improve money in the last rather than the first of these ways. A State need never be under, any difficulties; for, with the smallest savings, it may, in as little tune as its interest can require, pay off the largest debts. On this plan, it is of little importance what interest the State is obliged to give for money; for the higher the interest the sooner will such a fund pay off the principal."

Consequently he proposed,

"an annual saving, to be applied invariably, together with the interest of all the sums redeemed by it, to the purpose of discharging the public debt; or, in other words, the establishment of a sinking fund."

This fantastic scheme, rather less ingenious than the financial plan of the fool in one of Cervantes' novels, who proposed to the whole Spanish people to abstain for only two weeks from eating and drinking, in order to get the means of discharging the public debt, nevertheless caught the imagination of Pitt. It was avowedly on this basis that he built up his sinking fund in 1786, allotting a fixed sum of 5,000,000 sterling, to be paid every year "without fail," for this purpose. The system was not abandoned until 1825, when the Commons passed a resolution that only the bona fide surplus revenue of the country was to be applied in payment of the national debt. The whole system of public credit had been thrown into confusion by this curious sort of sinking fund. Between what was borrowed from necessity, and what was borrowed from amusement; between loans that were to increase the debt, and loans that were to pay it off, there arose a tumultuous medley. Interest and compound interest, debt and redemption, danced before men's eyes in such perpetual succession; there was such a phantasmagoria of consols and bonds, of debentures and exchequer bills, of capital without interest and interest without capital, that the strongest understanding became bewildered. Dr. Price's principle was that the State should borrow money at simple interest in order to improve it at compound interest. In fact, the United Kingdom contracted a debt of 1,000 millions sterling, for which it nominally received about 600 millions, 390 millions of this sum being, however, destined not for the payment of the debt, but to keep up the sinking fund. This glorious institution, which marks the golden era of stock-jobbers and speculators, the Palmerstonian Chancellor of the Exchequer had attempted to saddle again on the shoulders of John Bull. Mr. Disraeli has given it the coup de grâce.